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It began more than three years ago, when McNees bought an old industrial building on Manchester Street because he saw potential for redevelopment. A local historian of Kentucky's bourbon industry stopped by one day.

”He asked what we were going to do with the Old Tarr Distillery,“ McNees said. ”And I said, "The old what?'“

McNees learned that the circa-1866 building next door had been the warehouse for one of Kentucky's first post-Civil War bourbon distilleries. Later, McNees and his partners bought the abandoned James E. Pepper Distillery down the street.

Those two properties provide bookends and a theme for the Distillery District, an ambitious redevelopment project that the partners hope will someday house restaurants, clubs, art studios, a small distillery, a coffee shop, indoor recreation facilities, a farmers market, offices and condos.

McNees, 39, who grew up on a tobacco farm near Winchester, hopes to preserve and reuse most of the old distillery buildings.

”That way, we'll get both a modern development and one that celebrates Lexington's past and its culture,“ he said. ”It gives you the romance of history and creates a destination where people will want to go.“

It also will make the development eligible for state and federal historic tax credits that could cover as much as 40 percent of renovation costs.

Another key will be seeking tax increment financing, known as TIF. It allows a portion of state and local taxes created by new development in a blighted area to be used for up to 30 years to pay for the public infrastructure — utilities, sewers, streets and sidewalks — needed to make the development possible.

Currently, the district's properties generate $137,000 a year in state and local taxes, McNees said. Once the redevelopment is complete, he estimates the taxes will be a hundred times that amount.

McNees said city officials and the Downtown Development Authority have offered support and encouragement. The developers have conducted design workshops with students from the University of Kentucky's College of Design to generate ideas for how the old buildings might be reused. And they have met with nearby neighborhoods and businesses to get them comfortable with the project. More public meetings are planned soon.

The Distillery District, along with the Newtown Pike extension, could literally reshape a large area west of Rupp Arena. State and local officials are soon expected to unveil the design for a ”signature“ bridge that will carry Newtown Pike across the railroad yard near Manchester Street. The double-span bridge is expected to include decorative lighting.

Eventually, others hope to restore Town Branch Creek through the neighborhood, creating an eight-mile greenway trail into downtown. McNees and his partners are designing their projects to take advantage of Town Branch, which flows virtually hidden along Manchester Street and is funneled underground once it gets to downtown.

The Town Branch Trail proposal also envisions restoring one of Central Kentucky's oldest buildings, the 1790 James McConnell house. It now sits vacant beside a railroad track just across Manchester Street from the Pepper Distillery. It's not far from McConnell Springs, where Lexington was founded.

”It's totally neglected,“ McNees said of the dry-stone house as he looked at it from the distillery's roof. ”Can you imagine letting the home of one of Lexington's founders just sit there deteriorating like that?“

McNees said he and his partners have invested almost $9 million so far acquiring and renovating the collection of industrial buildings on 25 acres along Manchester Street.

The Old Tarr warehouse, an 11,500-square-foot structure that once housed 8,000 barrels of bourbon, was later used as a tobacco warehouse and as a machine shop, making parts for the IBM Selectric typewriters that were manufactured at what is now Lexmark.

The warehouse sat empty for years before McNees began converting it into an events hall that can hold 2,000 people. Its first test came in April 2007, when it was the site of the Beaux Arts Ball. Eventually, McNees wants to use adjacent buildings for restaurants and clubs, which would open in the back onto Town Branch Trail.

While the developers refine their plans, prepare a TIF application, seek financing and try to pull all the pieces together, they're renting out some of the buildings they own for industrial storage and artists' studios.

The most ambitious – and costly – piece of the project will be renovating the Pepper Distillery, which claimed to be the nation's largest when it opened in the late 1800s. Most of the buildings there now date from the 1930s.

The distillery's largest structure is a concrete and block warehouse that once held 100,000 barrels of aging bourbon. Each of the five floors has tall ceilings and an acre of floor space. It is built like a fortress, so future uses are almost unlimited.

Unlike Old Tarr, where only the warehouse survives, the Pepper site still has almost all of the buildings that were there when it was a working distillery.

Last week, McNees took me on a tour of the Pepper site. It was like stepping back in history, because most of the equipment was left in place to gather dust when bourbon-making stopped in the early 1970s.

”This whole thing has been like a significant archaeological dig,“ McNees said as we walked through each building, stepping around junk, broken glass and pigeon droppings.

The old mash tubs were still there, along with the brick kilns used to dry used mash for cattle feed. Huge gears and light fixtures sit on shelves in the machine shop.

There are stacks of production records from the 1960s sitting on shelves near a box with cans of grain samples from the early 1950s. McNees dipped his hand into an old grain sifter and scooped out hulls.

The developers began going through the Pepper property earlier this year, making basic repairs, cleaning up and deciding which machinery to keep and which to sell for scrap. AM talk radio plays non-stop in the main building to scare away critters.

McNees hopes to restore the distillery's smokestack, which used to spell out ”Pepper“ but is now a few letters short because the top was removed. The old water tower seems to be in good shape, and it has become the Distillery District's logo symbol.

A large lot beside the Pepper Distillery — familiar to some Lexingtonians as the place they used to go to claim a towed car — has been cleared. McNees hopes to have outdoor concerts there in a few months.

The first Pepper building likely to see reuse is the timber-frame barrel house. A local group plans to put a small ”craft“ distillery and tasting room there by next spring and has ordered a 200-gallon copper still from Portugal.

McNees and his partners have a big, expensive job ahead of them. But if they can find the money to match their imagination, the Distillery District could become an economic engine for downtown and a place that leverages Lexington's rich past for a more prosperous future.